Saturday, 20 August 2011

Court Rules Madoff Trustee Can Go Ahead with Clawbacks

The United States Court of Appeals for the Second Circuit district has handed a major victory to Irving H. Picard, the trustee who was given the unenviable task of overseeing the liquidation of Bernie Madoff’s investment firm. The Court has ruled that Picard can go ahead with his original plan of "clawbacks," - requiring "net winners," those who withdrew more than they invested from the scheme, to give up their gains.

Under Picard's plan, investors will be treated differently depending on their gains. Those investors who invested more money than they withdrew from the scheme, would be eligible to file claims for reimbursement. However, those investors who took out more than they invested, will be sued to recover their gains. One of the biggest clawbacks that Picard has attempted is one against the New York Mets. That lawsuit claims approximately $300 million dollars in profit that was recovered from Madoff’s investment firm.

Some San Diego securities lawyers have found that Mr. Picard's plan to deal with different types of investors is more consistent with legal standards than any other methods that have been suggested by investor groups and lawyers. The Court agreed. However, a number of investors targeted by Picard as part of his clawbacks scheme have resisted and have challenged his actions. According to these investors, determining the eligibility of investors must be based on the final account statements that were sent out by Bernie Madoff. However, the Second Circuit has rejected that position, holding that the use of fictitious account statements that showed phantom profits would be absurd.

With this victory, Picard’s plans become stronger and his plans for recovering money from net winners become easier. It doesn't seem likely that the investors who are opposing him would take the case all the way to the Supreme Court, or that the country's highest court would get involved even if they did.